Protecting Your Business: AI Washing and D&O Insurance
By: Geoffrey B. Fehling, Michael S. Levine, Alex D. Pappas of Hunton Andrews Kurth
Artificial intelligence (AI) is quickly transforming industries, and companies are rushing to integrate and market AI-driven solutions. However, the legal risks connected to AI are growing as quickly as the technology itself. Corporate leaders, in particular, face increasing exposure. Directors and officers risk personal liability for both how they represent and fail to disclose how their businesses use AI.
Two recent securities class action lawsuits highlight the potential for AI-related misrepresentations, underscoring the need for management to clearly and accurately understand how the business uses AI. Adequate insurance coverage for AI-related liabilities is also critical.
AI Washing: A Growing Legal Risk
AI washing, built on the same principle as “greenwashing,” is on the rise. It involves exaggerating or misrepresenting the role AI plays in a company’s products or services. Several companies have recently faced securities lawsuits based on alleged misstatements about their AI use.
These lawsuits serve as a warning for companies dealing with AI-related disclosure issues.
In Cesar Nunez v. Skyworks Solutions, Inc., a shareholder filed a securities class action lawsuit against Skyworks Solutions and certain directors and officers on March 4, 2025, in the US District Court for the Central District of California. The lawsuit alleges that Skyworks overrepresented its ability to capitalize on AI in the smartphone upgrade cycle. This allegedly led investors to purchase the company’s securities at inflated prices.
A similar lawsuit, Quiero v. AppLovin Corp., was filed the next day against AppLovin and certain executives. The complaint alleges that AppLovin misled investors by touting its use of “cutting-edge AI technologies” “to more efficiently match advertisements to mobile games, in addition to expanding into web-based marketing and e-commerce.” According to the complaint, these misleading statements coincided with reporting “impressive financial results, outlooks, and guidance,” which used “dishonest advertising practices.”
Risk Mitigation and the Role of D&O Insurance
The Skyworks and AppLovin lawsuits underline the importance of comprehensive D&O liability insurance as part of any corporate risk management solution. Companies should assess their D&O programs to maximize protection against AI-washing lawsuits. Key considerations include:
- Policy Review: Ensure that AI-related losses are covered and not excluded by exclusions like cyber or technology exclusions.
- Regulatory Coverage: Confirm that policies provide coverage for shareholder and regulator claims, as well as government investigations.
- Coordinating Coverages: Evaluate liability coverages, especially D&O and cyber insurance, to avoid or eliminate gaps in coverage.
- AI-Specific Policies: Consider purchasing AI-focused endorsements or standalone policies for additional protection.
- Executive Protection: Verify adequate coverage and limits, including “Side A” only or difference-in-condition coverage, to protect individual officers and directors if corporate indemnification is unavailable.
- New “Chief AI Officer” Positions: Ensure these positions are included within the scope of D&O and management liability coverage.
A proactive approach, especially when placing or renewing policies, helps mitigate the risk of coverage denials and enhances protection against AI-related legal challenges. Engaging experienced insurance brokers and coverage counsel can help strengthen policy terms and facilitate comprehensive risk coverage in the evolving AI landscape.
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